How is 13th-month pay computed, and what counts as basic salary?

Why

Presidential Decree No. 851 requires every employer to pay its rank-and-file employees a 13th-month pay of at least one twelfth of the basic salary earned within a calendar year. The formula is total basic salary earned for the year divided by 12. The operative word is 'earned' — periods you were not paid for, such as unpaid absences or leave without pay, simply do not enter the numerator, which is why the figure drops rather than being withheld.

What counts as basic salary is where most disputes start. The Revised Guidelines on the implementation of PD 851 exclude cost-of-living allowances, profit-sharing payments, the cash equivalent of unused vacation and sick leave, overtime pay, premium pay, night shift differential, holiday pay, and allowances or monetary benefits not considered or integrated as part of the regular or basic salary. If your company has treated an allowance as part of basic pay over time, that changes the answer — the label on the payslip is not conclusive.

Coverage is broad. Every rank-and-file employee who has worked at least one month during the calendar year is entitled, regardless of position, designation, how wages are paid, or whether the employment is still ongoing. Managerial employees — those vested with powers to lay down and execute management policies, or to hire, transfer, suspend, lay off, recall, discharge, assign or discipline — are not covered by PD 851, though many companies grant it anyway by policy, and a benefit granted consistently can ripen into a demandable one.

Leaving mid-year does not forfeit it. An employee who resigned or whose services were terminated at any time before the payment is entitled to the pro-rated amount for the portion of the year worked, and it forms part of the final pay due within 30 days of separation. The SSS maternity benefit is not basic salary, so it does not add to the base. Whether any salary differential the employer pays during maternity leave under RA 11210 should be counted is less settled, so ask HR how it was treated.

The deadline is 24 December. It cannot be moved to January, and it cannot be conditioned on you still being employed on that date. On tax: 13th-month pay and other benefits are exempt from income tax up to PHP 90,000 in aggregate under the TRAIN Law, and only the excess is taxable.

A worked example. Suppose you earned PHP 20,000 basic per month from January to August, then went on one month of leave without pay in September, and earned the same rate from October to December. Your basic salary earned for the year is PHP 220,000 across eleven paid months, so your 13th-month pay is PHP 220,000 divided by 12, or PHP 18,333.33 — not the full PHP 20,000.